By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, Dec 14 (Reuters) - The Australian dollar hovered near a one-month low against its U.S. counterpart and yen on Monday, with investors wary of the Chinese yuan, given its recent weakness.
The New Zealand dollar was in consolidation mode, having bounced 3.2 percent last week.
The Australian dollar AUD=D4 fell to $0.7166, from $0.7183 late on Friday. It skidded 2 percent last week in part due to sliding commodity prices. Key support was found around $0.7160, while $0.7240 was seen as a strong barrier.
Undermining sentiment were concerns about how much Beijing is prepared to allow its currency to fall. China late on Friday launched a new trade-weighted yuan exchange rate index, saying it was to discourage investors from exclusively tracking the currency's fluctuations against the greenback.
The market often uses the Aussie as a liquid proxy to hedge against weakness in China, one reason it fell back against the yen.
The Aussie dropped 0.5 percent on the day to 86.56 yen, pulling away from a peak of 90.71 touched earlier this month.
Not helping was investor nervousness ahead of a much-awaited rate hike by the U.S. Federal Reserve on Thursday.
"Anything other than a 25 basis point hike in the targeted Fed Funds range would be a huge surprise for everyone," said Stephen Innes, a senior trader at FX/CFD firm OANDA Australia and Asia Pacific.
He added that while the market was positioning for a gradual lift off, the Fed's post-meeting news conference would be scrutinised for anything more aggressive.
Across the Tasman Sea, the New Zealand dollar NZD=D4 was quiet at $0.6707, not far from a peak of $0.6782 touched last week.
"While the USD has been trending higher over the past year in anticipation of the first likely rate hike in a decade, the tone of the statement will determine how the U.S. dollar might fare as the year draws to a close and early next year," said BNZ Currency Strategist Jason Wong.
New Zealand government bonds gained slightly after a rally in the U.S. 10-year. Yields were 2 basis points lower at the front end and 3 lower at the back.
Again, the key focus for markets is the FOMC.
"The tone of the statement will be influential in setting the scene for the likely path of U.S. Treasuries and NZ long bond and swap rates over the coming year," said Wong. " We expect tighter U.S. monetary policy through 2016 will raise U.S. bond rates and this will feed through into the NZ curve."
Australian government bond futures rose, with the three-year bond contract YTTc1 up 5 ticks at 98.875. The 10-year contract YTCc1 added 6.25 ticks to 97.1775, while the 20-year contract YXXc1 was 5.75 ticks higher to 96.6575.